In this blog post we introduce the concept of the Lemon and the Lime. The lemon represents the type of advice you hear all too often. Although the lemon's advice appears to make sense on the surface, if you dig a bit deeper it is found to be wanting. The lime, on the other hand, provides refreshing advice that is in the best interest of the client.
I have heard many lemons suggesting that the best time of the year to set up SMSF's is June. The suggested benefit is getting in before the end of financial year. In the case of self employed people it represents an opportunity to make concessional contributions before the 30th of June. And for some people lucky enough to have money outside super - it enables non concessional contributions.
The problem is that a new fund which receives contributions before the 30th of June is going to require an annual return and audit for that financial year. That is quite a bit of unnecessary work, not to mention the cost for the trustees. So what is the alternative?
The lime would suggest making the contributions to a public offer fund (such as a retail fund or industry fund, and preferably a fund that the clients already belong to). On or after the 1st of July, the entire balance of the public offer fund can be rolled over into the SMSF. Yes, this means less fees for the accountant. The lime will forgo these fees because the advice is in the client's best interest.
Here is another tip. If you set up a new SMSF which has no transactions prior to the 30th of June, then you can apply to the ATO to avoid having to lodge an annual return for the year. The lime loves this approach - get the fund set up and the bank accounts operating. Just don't deposit any money into them. When the 1st of July rolls around you are ready to send off your rollover forms. Or better still, send off the rollover forms in June, and ask for a cheque rather than bank transfer. Then you should be ready to walk into the bank branch on the 1st of July with a big cheque and a smile (anagram of limes) on your face.
Considering it takes 4 weeks to receive your ABN, and a few more weeks to arrange bank accounts and rollovers, the best time to set the fund up is in May. Just don't deposit any money into it!